I just got my insurance renewal premium in the mail and saw that my new policy would cost me a whopping 71% more than it did last year. The cost of literally everything is going up, not just car insurance. And sometimes, it just doesn't make sense.
If you're seeing car insurance rates spike, you're not alone. Inflation has risen 3.7% over the past year, which feels unbearable. To put it into perspective, car insurance has shot up by more than 19%, according to data from the Labor Department. And while this feels outrageous to consumers like me, the reasons make a lot of sense.
People Forgot How To Drive During The Pandemic
Maybe not literally, but it sure does seem like it. Since COVID-19 kept us all off the road, there was a temporary drop in insurance premiums. Now that people have returned to the driver's seat, risky driving behaviors have emerged that are concerning. Sean Kevelighan, CEO of Insurance Information Institute, said, “People picked up some risky habits.” Fatal auto accidents substantially increased in late 2020 and early 2021, and this is one reason why insurance rates are skyrocketing.
Repair and Replacement Costs Are Through The Roof
Also, thanks to the pandemic, the expense of repairing or replacing car parts has skyrocketed because of supply chain issues, parts shortages, and the demand for auto mechanics. New and used car prices may have started to decrease, but repair costs are even higher, contributing to another reason that insurance premiums are surging.
Natural Disasters Will Be Aplenty in 2023
We have set a record for money spent on natural disasters and climate catastrophes in 2023, hitting an insane one billion dollars in damages. Factors like this seem unfair because they are out of our control, but the reality is that when natural disasters occur, someone has to pay for the damages.
The Balancing Act of Insurance
Insurance companies know they must keep premiums affordable for consumers, but they must also ensure they profit enough to meet their financial obligations. Insurance costs may be justified because of the higher expenses that insurers pay.
Harvey Rosenfield, the founder of Consumer Watchdog in California, points out that insurance companies make much of their revenue through investing in collected premiums. When they face financial challenges, they often increase rates to offset investment losses.
What Can Drivers Do To Save Money?
Since most states require drivers to carry auto insurance, here are some ways to mitigate some of the damage:
1. Shop Around: Rosenfield advises drivers to explore different insurance providers. If your current provider spikes your payment, playing the field and seeing who else is out there is okay.
2. Usage-Based Discounts: Some insurers offer lower premiums to drivers who install smartphone apps that monitor driving habits. Allowing them to track your habits may seem invasive, but it gives them confidence in your driving skills.
3. Adjust Deductibles: Opting for a higher deductible can lead to lower premiums. But make it manageable because then you run into financial issues if your deductible is higher than you can handle.